Wednesday, 3 March 2010


The world is starting to emerge from the global economic recession (some countries faster than others), but in terms of what brought the global financial system to its knees, what have we learnt and what are we doing about it?

The answers to these questions seem to be "a lot" and "not much" respectively.

The UK FSA and other regulators have come up with insightful commentary on the causes of the implosion in the financial services markets. Their remarks are true and diverse. They're also available on the various regulators' websites.

I was talking to one of the world's regulators recently and was struck by the absence of any vision of what needs to happen though. True, bonuses have been limited (and, no doubt, will be in future) and we've seen calls for increased capital, liquidity, governance, oversight and "living wills" (with variations on these major themes).

What we haven't seen is an understanding that what we've got today is the result of banks and economies developing over the centuries on their own, and regulators having to wrap themselves around the results. True, in most cases, these developments were the result of customers needs, regulatory developments, global trade expansion, economic and technological progress.

What we have now is a chance to ask:

1. What we want of our future global financial services market;
2. How it should be capitalised;
3. How it should be regulated;
4. How it should be paid for;
5. What happens when an institution fails.

Free market economics will necessarily drive much of this, and the last thing we need is government alone deciding how the system should run (Volcker, take note). Government and regulators do have a part to play, but so do the markets. We're still in the midst of mass hysteria where fingers continue to be pointed at bankers' bonuses as a useful diversion from other systemic flaws of which the politicians (and regulators) of the world would rather we remained as little aware as possible.

I will look at each of these questions in a series of articles over the next few weeks and attempt to put a framework on them. Suffice it to say, any suggestions (constructive, of course), are welcome.



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